Caught between a rock and Chapter 13

[Crozier]

I just recived the following message from my not-yet-hired attorney. Can anyone help me understand what my options are (or may be)?

"I spent quite a bit of time going over and over your numbers. The odd thing is that with the numbers you gave me, you don't qualify for a chapter 7 (i.e., you have too much Disposable Monthly Income; but on the other hand, in a chapter 13, you don't have Disposable Monthly Income from which to make a Chapter 13 plan payment -- the reason for the discrepancy is that in Chapter 13, we are allowed to deduct your retirement deductions and retirement loan repayment deductions from the calculation, while those numbers aren't allowed to be deducted in Chapter 7."

If he is confused, I must be completely screwed!

[LuciluS]

I just recived the following message from my not-yet-hired attorney. Can anyone help me understand what my option are (or may be)?

"I spent quite a bit of time going over and over your numbers. The odd thing is that with the numbers you gave me, you don't qualify for a chapter 7 (i.e., you have too much Disposable Monthly Income; but on the other hand, in a chapter 13, you don't have Disposable Monthly Income from which to make a Chapter 13 plan payment -- the reason for the discrepancy is that in Chapter 13, we are allowed to deduct your retirement deductions and retirement loan repayment deductions from the calculation, while those numbers aren't allowed to be deducted in Chapter 7."

If he is confused, I must be completely screwed!

He maybe partially right as this part of the new Bankruptcy Code is very vague. Are you under your State's Median Income?

Is there any way for you to wait awhile, stop the retirement deductions and up your expenses? I know when we first met with our BK Attorney late last Sept. one thing he told me to do was stop paying the CCs except for one I had a balance transfer in Aug. I paid that one for 3 mths. He also said try not to reduce any expense item. For an example, we pay extra to have free long distance on our phone bill. We have DSL internet & pay a tad bit for extra channels on Satellite.

We also got a $500,000 accidental death policy on my husband. Got a decreasing accident death policy for both of us on our Mortgage. We did this in Jan. of this year & hopefully are filing a Chapter 7 on 9/30/09. We are under our State's Median Income which supposedly unless you are picked for a random audit, you will not be scrutinized by the US Trustee. Your case will be handled by the Court's Trustee.

Short term or long term disability?? Cancer policy? Hopefully, you already have health insurance.

Is this the 1st attorney you've interviewed? If so, you might try 1 or 2 more if you can get Free Consults. We live in a small town and only had 2 Attornies to choose from in the closest city to us.

Good Luck

[Crozier]

I am double median (which is not that much for Southern California). I have approx. $120K unsecured, $40K secured (in two vehicle loans), and my pay is being cut 20% in September (in the form of no more overtime). I have -$1000 DMI with overtime; and after September, I will have -$3000 without the overtime. My situation is due to my wife's job loss. I cannot stop making payments on any of my unsecured, because they are auto-deduct, via my credit union. They are linked to my payroll department. So, they get paid first. Give the unemployment situation in my area and mandatory cut in overtime, I have blown through savings in less than 8 months, maxed the only two credits cards I have, and returned one leased vehicle early, which resulted in a "repo" on my credit report. At this point, BK seems to be my only option.

Given the "too much" DMI for Chapter 7 and "negative" DMI for Chapter 13 scenario, I guess I could file Chapter 7, get forced into a Chapter 13, and hope for tiny payments. I hate gambling on hope, when it comes to money! Your thoughts?

[LuciluS]

O Me. Is this the 1st Attorney you've met with? IF so, I would try to get in at least 1 more free consult if you could.

When you say stop making payments for secured because it comes out of your paycheck, is that a Madatory Requirement? When I worked at a CU in Indiana, yes we received a line item of employee and their contribution. Some who had loans could request the payroll deduction for a personal loan and or deducted, but it was mandatory.

Also, I fully understand you having to pay back the loan retirement, but is there any way to stop putting money into your retirement until you get some things resolved? Does your wife receive any unemployment benefits? Can you wait and file when your overtime is gone or will it be too late?

I know we stopped paying on our CCs late last Sept. and they are getting passed around from collection agencies to other CAs. Just form letters threatening is all we've received so far. Being able to live without credit cards was a big eye opener for us. Especially around Christmas time as we have 3 precious grandchildren. We've managed to make it tho LOL! Sending last payment to Attorney tomorrow and will drop off his required paperwork the first week in April & he will file us on 9/30/09.

I feel for ya'll in CA. Your state's housing market is down the toilet. Your government needs help and doesn't have any money. Not trying to knock your State..just saying with the economy like it is (yes, I believe we are still in a recession) CA got it hard.

Also, you might want to make a post in the Chapter 7 Section with a title something like 'Can't file a 7 or 13??'. You might get some better suggestions.

Luci

[kornellred]

Since you do not qualify for the Chapter 7 right off the bat, then just go with a Chapter 13. You can actually have a zero dollar plan payment if that is what the numbers call for. To make it look good, you may have to pay a token payment, just as long as it is more than would be realized with a Chapter 7 filing.

[HHM]

Your attorney is not confused. He is right. In many districts, retirement loan repayments and contributions cannot be deducted for purposes of qualifying for a chapte 7, but are factored in when calculating a chapter 13 payment. Odd, I know.

Frankly, I am surprised the attorney did that level of analysis before being hired. Look on the bright side, at least you know now before having paid any attorney. You can probably go speak to a dozen attorneys and nothing is going to change.

[OhioFiler]

If the OP is forced into a C13 but doesn't have enough income to fund the C13, when is he discharged? In a zero payment plan is the discharge delayed for 3-5 years?

[HHM]

If the OP is forced into a C13 but doesn't have enough income to fund the C13, when is he discharged? In a zero payment plan is the discharge delayed for 3-5 years?

He would still be in the plan for 3-5 years depending on if he was over median.

In reality, zero payment plans are non-starters. Your unsecured creditors must receive some dividend, most courts will not allow you to do a back-end chapter 7 with a zero payment 13. But you can get a chapter 13 plan confirmed that "initially" pays nothing. You simply need to insert in the language of the plan something to the effect that debtor expects their income to increase by x date, and the debtor will devote all his disposible income to the plan.

[JRScott]

Could you move your bank account to another credit union or bank where you have no debt and move the direct deposit to it?

Then if you could wait say until around December/January would enough income fall off to allow you into a chapter 7 with the loss of income expected staring in September?